The Argument Over China's Economic Prospects Intensifies

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Chinese shoppers chooses clothes and toys on sale at a shopping center in Nanjing, east China's Jiangsu province

The Wall Street Journal has raised the issue of whether the Chinese consumer can replace the U.S. consumer as the most important engine of the global economy. The answer is "not yet", but if consumer spending keeps dropping in America and the appetite for consumer goods among the Chinese middle class keep growing, that picture could change.

China may not be as well off as it seemed a month ago, so its ascendancy to the top of the worldwide economic food chain may be put off for awhile. (See pictures of China's business ventures expanding into Africa.)

China's exports fell again in April and fell more sharply than most analysts had expected. The value of goods and services leaving the country was down 22.6% compared to last year. Reuters reports that economists expected the drop to be only 18%. Several experts also pointed out that the reason that Chinese economic growth is still reasonably strong is due to the nation's $585 billion stimulus package.

The trouble with the stimulus packages in the U.S. and China is that eventually the efforts of governments to prime the pump run out of money and economic activity has to stand on its own. For China and the U.S. the end of that support means very different things, but the are inextricable connected. China's stimulus package is aimed at driving business activity and consumer spending within the nation's borders. But, if demand for its exports does not return soon, the most critical aspect of its GDP growth will still be in an anemic state. Alternatively, in the U.S., the core of the stimulus effort is to drop taxes to improve consumer spending and give financial aid to projects that should help move up employment. Until the American consumer begins to move back into the market and increase demand though normal spending, U.S. GDP will not rise and the rate at which the U.S. imports goods from China will not recovery. (See pictures of China's wild side.)

China's economy cannot stand on its own without the U.S. economy recovering its foundation, which is consumer spending. That means that the prospects of rapid GDP growth in the world's most populous nation remain doubtful.

Douglas A. McIntyre

See pictures of China's electronic waste village.

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